Nuclear stand-down: Google, Samsung, and the sale of Motorola Mobility

With the sale of Motorola, Google and Samsung's cold war is over.

The relationship between Google and Samsung has been rather complicated lately. Samsung uses Google's Android OS on nearly all its phones and tablets, but Google competes with Samsung via the Nexus program and Motorola Mobility. Google needs to be careful to not anger Samsung, because Samsung accounts for around 40 percent of Android shipments, and losing the company would be a major blow. Samsung is wary of the amount of control Google has over the OS that powers all its phones, so it tries its hardest to promote its own custom features and self-built apps, which are often poor clones of Google apps.

Google and Samsung have been in a cold war, both continually escalating their possible attack scenarios for when things heat up. Samsung was focused on creating alternatives to all of Google's apps—it has even aimed to cultivate its own app store—in the hope that it could one day fork Android, dump the Google apps, and go out on its own. In the background, Samsung has also been trying to develop Tizen, a competing smartphone OS that it would own from the ground up. Google's nuclear weapon of choice was Motorola. Motorola was owned by Google, but "firewalled" away from the Android Team. With only a reorganization, Google could go fully vertical—Apple style—and build hardware and software together. It could then either stop licensing the Play Store and other Google Apps to its competitors, or play extreme hardball during licensing negotiations. Even Samsung, with all its cloned Google apps, would not have much of a response to being cut off from Google Play Services and the Play Store.

Neither side went through with their plans, because aggression by either company would trigger mutually assured destruction. If Google integrates Motorola and Android, every Android OEM walks, and Google's market share goes down the tubes. If the next Galaxy S phone comes out with forked Android and no Google apps, Samsung's user experience would be horrible—no Gmail, no Google Maps, and no huge Play Store app selection.

All week, we've been seeing signs that the cold war is over. As if some kind of massive treaty was signed, Google and Samsung are best friends now. The current facts are that Google and Samsung signed a patent cross-licensing deal and that they'll be sharing patents for the next 10 years. Google will also sell Motorola and bow out of the smartphone hardware market.

The rest of the information we've heard is unconfirmed, but makes perfect sense in the context of a wide-reaching peace treaty. Re/code reports that Samsung and Google met at CES and started large, sweeping peace talks. The report says the result was “a huge change, a sea change in the last few weeks.” This was reported before news of the Motorola deal hit, so it sounds very credible. Supposedly Samsung will "consider dumping or altering" its Magazine UX interface, which recently debuted at CES on the NotePro and TabPro, and Samsung's devices will "spotlight" Google services, like the Google Play content stores, instead of promoting Samsung-made alternatives. Recode said the results of the talks have "only just begun dribbling out to the public," and the whole report makes Google sound like the victor of the deal.

Still, given the long-term investments Google has made in Motorola, Samsung's concessions seem relatively small. Google is not only losing money on the deal, but also a bunch of employees that were cross-pollinated from Google, including Motorola's CEO, Dennis Woodside, who was a high-ranking Google executive. This was not some kind of pre-planned patent grab by Google—every indication was that Motorola would stick around for a long time. The now-wasted long-term investments and the amount of money Google is losing on the Lenovo deal make this seem like a swift change of heart driven by the Samsung negotiations.

The entirety of the deal is still secret, but we think the basic gist of the deal is that Google stops making hardware and competing with Samsung, and Samsung backs away from software and stops trying to usurp Google's control over Android. The deal makes sense for both companies—Samsung wants to sell hardware, Google wants to make software, show ads, and get data. With Motorola gone and each company having a well-defined role to play, there's no reason for the two to be at each other's throats all the time. The new model is basically Wintel—Samsung plays the part of Intel and makes the hardware, and Google is the new Microsoft, focusing on software.

As we learned with Motorola's "18 month pipeline" quote at the beginning of the Google acquisition, the smartphone market moves very slowly. Touchwiz can't go away overnight, but we'll mostly likely see Samsung tone down its skinning of Android and its associated software add-ons. Magazine UX will still have to be released, but don't expect it on future hardware support. Motorola is as good as gone, but what of Google's Nexus program? There have been rumors that Nexus devices would be dead in 2015, and a deal like this would seem to support that—Samsung doesn't want its software vendor to compete with it in hardware. Since the two companies are so chummy now, Samsung could fulfill any hardware needs that Google has.

It seems like Samsung has the Android hardware market tied up for the foreseeable future. Google was turning Motorola around, and it looked like it would become a serious competitor, but now its future is unclear with Lenovo. The best thing Lenovo could do is "not screw it up," but it's hard to imagine a non-Google OEM shipping stock Android. As for the rest: At around five percent of the Android market, LG is currently the second biggest Android OEM, but its luxury of selling the Android flagship for two years in a row could be coming to an end. HTC is dying, and every phone it releases seems like the last. The rest of the Chinese manufacturers haven't been able to put together a serious flagship yet.

All the details are still emerging, and we'll likely be picking up the pieces of a deal like this for months, but make no mistake, a major event has happened. The two mobile superpowers seem to have switched from co-dependent enemies to market-conquering partners. It will take them a while to get organized, but if they do, will anyone be able to stop Samsung and Google?

The difference between what Gooble paid for Motorola & what they have made on selling off the set top boxes & now the rest of the hardware division to Lenovo. There are at least 2 and more like more than 3 Billion dollars missing. I'd call that losing money...

Yes, Google is becoming Microsoft - the nineties MS, that is, not the watered down shadow of itself we have now.

Word around the 'net is that the big hammer wasn't Motorola but Maps. After seeing how Apple made a less than stellar job with replacing Google maps (and a version that was degraded compared to what Android gets, at that - Google held back turn-by-turn and vector maps from Apple), it was clear that Sammy didn't want to mess with that. The only neutral party they could turn to with a map solution is the remainder of Nokia, which may not have worked out (the Finns know what they have, and may have wanted too much for it).

I can't think this is a good thing for consumers. I like that Lenovo is entering into the smartphone arena. In other areas they build solid products at reasonable prices. I think they will be strong competitor with LG and HTC. But, if Google and Sammy are working together, they will have a major competitive advantage over the other manufacturers and Google didn't take a few billion dollar hit on the Moto Mobility sale without a long term profit motive. I'm afraid their plan is to use their new found market position to increase prices. Next year perhaps you will have a choice between an LG/HTC/Lenovo device running KitKat with no time table to be updated or an S6 running Llama (or whatever tasty snack Google names the next Android release after) for $100 more than the competition.

The difference between what Gooble paid for Motorola & what they have made on selling off the set top boxes & now the rest of the hardware division to Lenovo. There are at least 2 and more like more than 3 Billion dollars missing. I'd call that losing money...

It really depends on what you value Moto's patents at. I agree with you that they lost money, but it's not as bad as it appears at first glance.

he misses the fact that when they sold the set-top box divison, that as well as cash they got 15% of the company that bought it (which is currently worth 0.5 Billion), and I think he understates the tax benefits they got by about 0.5Billion too though on the other hand he also doesn't actually add up the Motorola losses he mentions which are about 2 Billion (but Google gets tax off the top of that, so call it 1.5B).

I think with all that, if you value the patents at 0 (and clearly, if you lose a lawsuit against Apple, every single one of your 24000 patents (inc. pending) is worthless, everyone on the internet knows that), then it cost them a couple of billion. Every dollar you assign to patents (and Google says 5.5Billion in their accounts) takes that towards a profit.

I know the current rumor is that Google will halt the Nexus program in 2015 in favor of Google Play Editions of hardware, but I find this to be a huge pity if true. The GPEs are nice as an option, but let's be serious, the hardware vendors are going to give no ground on pricing. So, to get non skinned Android (with roughly the same hardware), the price of entry to the consumer goes up considerably.

Very, very interesting. The Moto X just came out over here in the UK and I was going to replace my old Nexus 4 with it... This news has dampened my excitement though. I was seriously interested in the Moto/Google partnership; just like Nokia/MS had built up an exceptional understanding I thought this would be the same over here in Android world!

Google has to manage the Samsung partnership carefully though, as it has such a strong hold of it's Android ecosystem. Though I have always hated Touchwiz, just my personal preference...

On the other hand, Lenovo have just built some incredible laptops (the Yoga range) and they look awesome, as well as having top specs. So I am seriously not ruling out Moto/Lenovo phones, especially with some Google exec's now on board, and I will take the plunge with the Moto X. Lets see what American craftsmanship is made of...

It doesn't benefit Samsung (as opposed to consumers of Samsung's products, which - face it - are ancillary) to accede to anything from Google here. eg:* Samsung's parallel apps and skins build a stronger brand identity for itself, away from plain Android.* Samsung, with a parallel core app ecosystem, can use or not use Android on any product in the future by porting those apps

If these events with respect to Google and Motorola are all really about Samsung then taken to their logical extent: given Samsung is so far and away the biggest Android OEM that it can make Google divest itself of a $12 billion acquisition in under 24 months, then at this point Google no longer controls Android. Hence what's the point of Google itself developing Android? Google should just sell it to Samsung for some ungodly amount of money and be done with it.

he misses the fact that when they sold the set-top box divison, that as well as cash they got 15% of the company that bought it (which is currently worth 0.5 Billion), and I think he understates the tax benefits they got by about 0.5Billion too though on the other hand he also doesn't actually add up the Motorola losses he mentions which are about 2 Billion (but Google gets tax off the top of that, so call it 1.5B).

I think with all that, if you value the patents at 0 (and clearly, if you lose a lawsuit against Apple, every single one of your 24000 patents (inc. pending) is worthless, everyone on the internet knows that), then it cost them a couple of billion. Every dollar you assign to patents (and Google says 5.5Billion in their accounts) takes that towards a profit.

Thank you for that. So they paid 3.2B plus 2B minus 0.075B and some tax benefits - call it 5 billion in all, given that I think they would have avoided most taxes on that 2 billion in profit anyway - for a patent trove. That makes it about the value of those patents. 5.5B seems high given their limited success so far, but there is another side to it: Moto was supposedly preparing to start suing other Android manufacturers using those patents. By buying them, Google stopped that. All in all I think they overpaid, but not stupidly so.

I was very skeptical of Google's acquisition of Motorola Mobility 22 months ago. I bought into the idea that Google primarily bought Motorola for it's patents. However, after the deal was consumated and Google trumped the coming Android smartphones in the Motorola pipeline, I thought that it was a bad idea. Stick to software, that's what you are good at. Like this article said, HTC is dying a slow death and this was the company that produced the first Android handset. I have a gorgeous HTC One Smartphone, but I think it'll probably be my last, because a year or two from now HTC will not be around. Google tried to get Motorola to market mid-level phones, but it seemed like those didn't catch on either. It's unfortunate for Motorola, which has fallen so far and so fast in 10 years. However, at least they are not suffering the fate of Nokia, which is much, much worse. LG may or may not be able to run Motorola mobility around, but at least LG is hardware company and they know how to make it on razor-thin margins. Google was out of it's depth when it came to mobile phone hardware. Goodnight Motorola and HTC. We'll miss you. Long live Android.

Sorry, I meant the company (Arris) is worth 3.5 Billion, and Google now owns 15% of the shares, so that's worth 0.5 Billion.

You took 15% of that 0.5 Billion again, to get 0.075B. (If we were getting down to that level of detail then Google got 0.075B for selling a couple of Motorola factories in Brazil and kept the Advanced R&D lab etc., but I think the big picture is clear enough if we just stick to things worth over 0.5 Billion)

As an iPhone & iPad user, it's good that Google and Samsung have reached peaceful terms and avoided a war that would make both of them weaker.It makes the whole market stronger and pushes everyone to make things better - the consumer can only benefit from this, no matter what platform you are on or what manufacturer you prefer.

I don't want to prejudge this but as a recent purchaser of a Moto X, I am a bit wary. Though Google always said they kept Motorola at arms length, their influence was evident. Even the pre-Google pipeline releases such as the last couple Droid generations were "de-blurred" and made into a much more stock experience, and the Moto X and Moto G had a Nexus-like appeal.

I don't know if Lenovo will continue that design philosophy. If future software releases for my Moto X come laden with a new skin and a bunch of Lenovo bloat I will be pretty livid. I know the Lenovo Tiny M72p I got at work needed to be nuked and have a clean copy of Windows re-installed because it was bogged down with so much Lenovo crap, though the hardware is great.

I know my desires have little to do with what's profitable, and to some degree I resent the amount of influence Samsung holds over Android. Despite these agreements with Google I don't expect Samsung to suddenly become a good steward of the defacto Android experience.

Google already lost out big time to Apple when they were dropped from providing core apps. The risk of Samsung going its own way because of a few hardware sales that isn't core business makes this a sensible deal.

The deal is not a total financial loss for the extremely wealthy Google. In addition to keeping billions of dollars’ worth of patents, it essentially turned Lenovo into a factory for its Android operating system, and also picked up some cash.

It is unclear exactly how much money Google lost on the Motorola deal over all. In addition to the patents Google is keeping, Google sold Motorola Home, the portion of the business that made set-top boxes, to Arris in 2012 for $2.35 billion. Motorola also had $2.9 billion cash on hand when Google bought it.

Eitherway, it's a win for them as they create a stronger Android OEM with huge ties to China (a very big, and difficult market to enter), as well as rein in Samsung as well boosting Android's legal defence.

I don't know if Lenovo will continue that design philosophy. If future software releases for my Moto X come laden with a new skin and a bunch of Lenovo bloat I will be pretty livid. I know the Lenovo Tiny M72p I got at work needed to be nuked and have a clean copy of Windows re-installed because it was bogged down with so much Lenovo crap, though the hardware is great.

On the other hand, they managed the ThinkPad line fairly successfully. Not perfectly, but better than people expected, I think. And the new generation of Moto devices gets great review, plus there's probably another year or two of stuff in the pipeline.

If they are smart, see the review and compare to their ThinkPad brand, they'll handle Motorola similarly as a brand. Then they could have a fairly nice line-up. Let's hope they're not idiots.

I wonder if Google sold Moto for a steal on a promise by Lenovo to stick with stock Android? If Lenovo has no desire to do software, that could work well for both. Lenovo gets into the mobile market the way they want to, focused on hardware, like they are now in the PC market, and without spending a ton. And Google gets to improve their relationship with all the other hardware vendors, dump a business they suck at/are loosing money at, and they still have someone shipping stock android. All for a few billion $, and $ is the one thing they have lots of to throw around.

The difference between what Gooble paid for Motorola & what they have made on selling off the set top boxes & now the rest of the hardware division to Lenovo. There are at least 2 and more like more than 3 Billion dollars missing. I'd call that losing money...

It really depends on what you value Moto's patents at. I agree with you that they lost money, but it's not as bad as it appears at first glance.

A loss would be if they don´t keep anything, or do you think that Nortel patents are a loss?

I am wondering what is keeping Samsung to do some Red Wedding kind of backstabbing in the Future. Sure They made a deal but only Google committed to irreversible actions. A couple of years down the line (when the sale is finalized) and all other competitors are really insignificant, there is nothing keeping Samsung from forking Android. Sure Google would be mad but they wouldn't be able to do something.

This is like having Russia agree to destroy their nukes while the US agreed keep them in their basement. Not really fair..

I am wondering what is keeping Samsung to do some Red Wedding kind of backstabbing in the Future. Sure They made a deal but only Google committed to irreversible actions. A couple of years down the line (when the sale is finalized) and all other competitors are really insignificant, there is nothing keeping Samsung from forking Android. Sure Google would be mad but they wouldn't be able to do something.

This is like having Russia agree to destroy their nukes while the US agreed keep them in their basement. Not really fair..

As has been mentioned Google's biggest stick here is maps, not Motorola. It's not something even Samsung could replicate easily.

Ron Amadeo / Ron is the Reviews Editor at Ars Technica, where he specializes in Android OS and Google products. He is always on the hunt for a new gadget and loves to rip things apart to see how they work.